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Refund Anticipation Loans

Does OTS' Slam Down on MetaBank Help Republic Bank?

Adam Rust's picture

Posted October 13, 2010

MetaBank's loss may be Republic's gain.

That could be an unintended consequence of yesterday evening's Supervisory Directive from the OTS that pushed MetaBank out of the refund anticipation loan market.

Republic Bank (Kentucky) is an FDIC-regulated bank that has provided refund loans to Jackson Hewitt for some time. In 2010, Republic stepped in and added to its commitment to Jackson Hewitt after the tax preparer lost their RAL capital from Pacific Capital Bancorp. Republic had made about one-quarter of their RALs. In 2010, they made all Jackson Hewitt's RALs. Jackson Hewitt couldn't find a full replacement for the loss of the PCBC money, so they could only offer RALs in about half of their stores.

This had a significant effect upon Jackson Hewitt. JTX recorded an impairment to goodwill of $274.1

New Problems for Jackson Hewitt

Adam Rust's picture

Posted October 13, 2010

Today's news that the OTS is going to prevent MetaBank (CASH) from offering refund anticipation loans puts a hurt on its profitability, it might present a bigger crisis for one of its partner companies.

No RALs from MetaBank  threatens the viability of the entire business model at Jackson Hewitt.

The SEC published news of the OTS's Supervisory Directive overnight.

Many of Jackson Hewitt's customers apply for a "financial product."  Financial product fees constituted 22 percent of revenue in 2010.  About 9 in 10 JTX customers used either a RAL or a RAC in 2010. The share was

My Reflections on the H&R Block Shareholders' Meeting

Adam Rust's picture

Posted October 5, 2010

I had a productive trip to Kansas City on Thursday.

H&R Block's annual shareholder's meeting was held in the theater of the Kansas City Repertory Theater. There was a table set up in the lobby. I signed in. I was the third visitor. The letters "H.K" had been scrawled in the previous entry.

From the start, the leadership at H&R Block was extremely gracious. The General Counsel met to go over some basic ground rules for the meeting. He explained the agenda and directed me to a seat near a microphone. A few minutes later, Alan Bennett introduced himself.

As soon as I sat down, a man in a blue embroidered polyester vest and matching pants turned around. He raised his eyebrows. The message was: I'm with you here.

There is Something Left Unsaid: MetaBank, SBTPG and their RALs

Adam Rust's picture

Posted September 17, 2010

Santa Barbara Tax Products Group (SBTPG) announced a new agreement to offer refund anticipation loans via a partnership with MetaBank on August 20th.

It was published in a short statement on the web. While the delivery of the news was straightforward, it portended a lot. SBTPG would take its expertise in refund anticipation lending, which came from its former status as a part of Pacific Capital Bancorp, and potentially take up some of the "space" that had been vacated by JP Morgan Chase and by Pacific Capital. Remember that both were out of the market.  Chase voluntarily exited after this year's tax season. The OCC made Pacific Capital stop.

SBTPG worked with MetaBank to provide refund checks during the previous tax season.

“While our foundational year with MetaBank was a success, we are optimistic that our best days are ahead as we build the right relationships that will help TPG, MetaBank and our business partners exceed customer expectations," said Rich Turner, CEO of SBTPG, in a prepared statement.

The timing was interesting. Less than two weeks prior, the IRS had canceled its debt indicator. That was big. It meant that any refund loans made in 2011 would have to be underwritten in a black box. There would be no ability to gauge the likelihood of a problem in a refund. SBTPG was itself somewhat of a brazen entity. It used the

More RAL Litigation against Tax Preparers

Adam Rust's picture

Posted September 7, 2010

Jackson Hewitt and H & R Block both suffered setbacks in their efforts to defend their refund anticipation loans in New York courts last week.

In Jackson Hewitt Tax Service v. Kirkland, a judge dismissed an effort by Jackson Hewitt to prevent the New York State Division of Human Rights from continuing with its investigation of the marketing of JTX's refund anticipation loans. Kirkland, the Commissioner of the New

Is Block on the Hook for Sour RALs?

Adam Rust's picture

Posted August 31, 2010

Unless I am mistaken, H&R Block will share in much of the risk for its refund anticipation loans during the upcoming tax season.

Block has a relationship with HSBC for its refund products.  Block's customers are delivered to HSBC for refund loans.  HSBC advances the customer cash based on the expectation that they will have a refund.  In the past, that expectation was backed up by the IRS debt indicator. HSBC won't have that kind of certainty next year.

My reading of Article IV, Section 4.5, part (a) of this filing, made in March 2010, is that Block will have to refund to HSBC on their losses from RAL advances that cannot be collected.

No Debt Indicator - Perhaps no Jackson Hewitt?

Adam Rust's picture

Posted August 23, 2010

Wells Fargo has the power of life and death over Jackson Hewitt. In the next few months, we'll get the first sense of how much patience Wells has for its patient.

Wells has extended a large revolving line of credit to Jackson Hewitt. The terms are about as strict as can be.  For Jackson Hewitt, those terms are a problem, because regulatory events in recent weeks have created the grounds for Wells Fargo to declare that JTX is in "event of default" on their loan.

Last May, Jackson Hewitt and Wells re-negotiated their agreement. Jackson

Hewitt reduced its line. Subsequently, the line of credit is $105 million. The debt is expensive: Wells is charging them LIBOR plus 11 percent.

Tax Prep in 2011?

Adam Rust's picture

Posted August 6, 2010

The IRS left a big question hanging in the air when it announced that the debt indicator would not return for 2011. The issue is the split refund. The split refund already exists. This year, tax payers were allowed to dedicate a "split" of their refund They said that will study the idea of letting taxpayers split their refund.

RALs aren't going to disappear. Right now, Steve Trager, John Hewitt, Alan Bennett and the other titans of the refund anticipation loan are developing

What RALs Cost North Carolinians

Adam Rust's picture

Posted August 5, 2010

Today's announcement by the IRS that it is canceling the debt indicator is very significant.

The debt indicator is what made the refund anticipation loan possible. Without it, banks would never have been able to tell if a tax filer had outstanding tax liens. Now that the IRS is ceasing to provide the debt indicator, the future of refund anticipation loans seems dim.

RALs were a big business. More than 470,000 North Carolina households spent almost $50 million on RAL fees in 2006 (according to research we did with the IRS' SPEC data).

The IRS' complicit involvement in the RAL business was undermining

IRS Drops the Debt Indicator

Adam Rust's picture

Posted August 5, 2010

This hour, the IRS has announced that it intends to cease to provide tax refund companies with the debt indicator. This is a ground-breaking change for the tax refund anticipation loan market.

From the IRS press release:

“As we prepare for tax season every year, we look at past practices and consider whether they still make sense. We no longer see a need for the debt indicator in a world where we can process a tax return and deliver a refund in 10 days,” IRS Commissioner Doug Shulman said. “We encourage taxpayers to use e-file with direct deposit so they can get their refunds in just a few days.”

The IRS has been willing to check for outstanding tax liens as a service to


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